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Station bringing creditors onboard

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Station Casinos and its unsecured creditors reached agreement Wednesday on a deal that should smooth a path toward finalizing the casino company's bankruptcy reorganization.

In a filing with the U.S. Bankruptcy Court in Reno, the Official Committee of Unsecured Creditors, which represents bondholders who are owed $2.5 billion, will gain an ownership stake in a new company that includes Station Casinos' primary lenders and Fertitta Gaming, a business formed by Station Casinos founders Frank Fertitta III and Lorenzo Fertitta.

According to documents filed with the court, the unsecured creditors, who had opposed all aspects of Station Casinos' two-pronged bankruptcy reorganization plan, will invest up to $100 million in the new entity and agree to drop opposition to the company's reorganization proposal in exchange for up to a 15 percent ownership stake.

"The committee has negotiated for and obtained modifications to the plan including provisions that will result in a recovery to (Station Casinos') unsecured creditors," the company's lawyers wrote in a lengthy disclosure statement for the reorganization plan.

The agreement comes a little more than a week before a bankruptcy court administered auction of 11 Station Casinos properties and other entities. The unsecured creditors, who were facing the potential loss of their entire investment in the company, had opposed the auction.

The proposed settlement must be approved by U.S. Bankruptcy Judge Gregg Zive. During several contentious court hearings in May, the judge encouraged representatives for Station Casinos and unsecured creditors to continue negotiations on a settlement.

Fertitta Gaming Chief Financial Officer Marc Falcone said some funds from the unsecured creditors would be used in the auction.

"We are extremely pleased to have reached an agreement with the Unsecured Creditors' Committee to support the proposed restructuring of Station Casinos," Falcone said.

Attorneys for the unsecured creditors in New York and Las Vegas could not be reached for comment.

Nancy Rapoport, a professor of bankruptcy at the University of Nevada, Las Vegas' Boyd School of Law, said agreements between bankrupt businesses and unsecured creditors are often reached at the last minute before an important deadline in a case.

"I would certainly call this a big development," Rapoport said. "Getting cents on the dollar never really replaces that initial investment. What they are betting is that the company will make a turn-around and that they are able to share and eventually recoup their losses."

Rapoport said having the unsecured creditors on board with the gaming company will help move resolution of the bankruptcy case forward at a quicker pace.

As part of the agreement, the unsecured creditors will support the spin-off of four Station Casinos properties -- Red Rock Resort, Palace Station, Sunset Station and Boulder Station -- along with the Wild Wild West and its adjoining 110 acres, into a new holding company owned by real estate investor Colony Capital, primary lenders Deutsche Bank and JP Morgan Chase & Co., and Fertitta Gaming.

It was unclear how the new agreement will affect the ownership of the new company.

In the original reorganization plan that was announced in March, Fertitta Gaming would own 46 percent of the new company, Deutsche Bank and JP Morgan would control 50 percent and Colony would own 4 percent of the company.

Fertitta Gaming would operate the casinos under a 25-year management contract that would pay the company 2 percent of the properties' revenues and 5 percent of the properties' cash flow.

The unsecured creditors are also backing the second prong of the reorganization, a planned bankruptcy court auction on Aug. 6 in Reno in which 11 casinos -- including Texas Station, Santa Fe Station and the two Fiestas -- and certain land holdings and American Indian gaming contracts would be placed up for sale as one entity.

Fertitta Gaming, supported by Deutsche Bank, JP Morgan and Colony Capital, will bid on the properties as the stalking horse, or initial bidder, with an offer of $772 million.

The $772 million bid includes $455 million in new debt, according to court records.

The unsecured creditors also will receive an ownership percentage in the auctioned properties if Fertitta Gaming is successful in winning the bidding process.

During a court hearing two weeks ago, Station Casinos' advisers and attorneys said they were working to determine whether companies that submitted letters of intent to bid on the Station Casinos properties were qualified.

Financial adviser Lazard Freres & Co. confirmed that bids other than the stalking horse bid were submitted. A firm representative wouldn't say how many offers were in place.

Green Valley Ranch Resort and Aliante Station aren't included in the auction. The properties are 50-50 joint ventures between Station Casinos and the Greenspun family.

Station Casinos is Las Vegas' largest locals casino operator with 18 properties throughout the valley. The company reported approximately $5.6 billion in debt when it filed for Chapter 11 bankruptcy in July 2009. About $2.5 billion of the secured debt was covered by Red Rock Resort, Palace Station, Boulder Station and Sunset Station. About $900 million of the secured debt is covered by the company's other 14 properties.

Last year, Boyd Gaming Corp. offered to pay $950 million for 14 of the company's casinos. The offer was rejected and five months later Station Casinos filed for Chapter 11 bankruptcy. Boyd Gaming tried to insert itself into the bankruptcy case in November by acquiring a portion of the company's unsecured debt. In December, Boyd Gaming offered to purchase all of Station Casinos for $2.45 billion.

Station Casinos also has been in a long protracted dispute with Culinary Workers Local 226, which has been seeking to organize the company's workforce.

Founded by the Fertitta family, Station Casinos went private in November 2007 in a $5.4 billion private equity-financed deal. Frank and Lorenzo Fertitta invested $720 million into the company.

The Fertitta family members own 25 percent of Station Casinos while Colony Capital owns 75 percent of the company. However, the Fertittas have control of the board of directors.

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